Will the financial advisor be the charity’s superhero and save the day? Or, will the charity take the lead showing their donors the best ways to give?
I can’t tell you how often I’ve heard in the past 20 years, “we’re fundraisers and not financial advisors…I’m not going to have a discussion with my donor about what they have or how to give…they should discuss this with their financial advisors…we have some information on our website.”
Frankly, I’m glad that the financial advisors have become involved with charitable planning. It is the wake up call to all charities to get trained, have the tools and knowledge in having meaningful discussions with their donors. These discussions will lead to meaningful discussions with the advisors for their donors which will lead to profound changes in funds raised for these organizations.
The competition for donations is as great as ever, even though the opportunity to discuss charitable giving with donors hasn’t changed over the years. The donors have always been there but the charities haven’t been there to discuss the best ways for their donors to give.
What has changed is the competition has become that much greater for charities and it’s not from other charities.
The challenge is that in the past ten years the charitable giving market has just become that much more competitive.
Financial advisors have now entered the market with Donor Advised Funds (DAF’s), Private Foundations and other tactics to create a greater stickiness to the investments that they manage for their clients. It’s not a bad thing that this has occurred since charities have always had this option but never pursued it.
In reality, the charities are doing all of the hard work in terms of engaging their donors, but these charities are content in receiving cash donations that are more expensive than a donation of appreciated stock (For a recap see our latest blog).
All of the galas, golf tournaments, special events, direct mail, and online giving does not come close to the potential of a well cultivated donation where a well trained or skilled charity staff or volunteer engages with their donor and illustrates the best ways to consider a donation.
Donors can give more at the same net cost if the donation is in the form of an appreciated asset like a stock or mutual fund.
Stock donation = tax credit + avoid taxable capital gains (all pre-tax dollars)
Tax on a $100,000 taxable capital gain = $26,765
Cash/Cheque/VISA = tax credit (and you’ve used after tax dollars)
In the image above, you will see how the Capital Gains on your Stock and / or Mutual Fund investment will increase your taxes. If you chose to not make a donation you would be owing $26,765 on your investment.
Here is a scenario where you could offset that same Capital Gains tax with a donation that will not only benefit a deserving organization but also help with your taxable income. By donating a portion of your Capital Gains such as $100,000 in this case above, you see how you can reduce your tax and generate a tax credit of $44,112 where your $100,00 donation only costs you $55,888.
In the image above we see a case where the donation was made in cash. A $100,000 donation generates a tax credit of $40,960 costing you a total of $59,040.
Let’s create a win-win-win for the charity, the financial advisor and the donor.
- Give the charities and the advisors the tools the need to have informed and meaningful discussions with their clients and prospective donors;
- With the support of advisors, charities should engage in discussions with their donors to create endowed funding that support programming or operations; and
- A cooperative relationship between the advisors, the charities and the donors/clients can create opportunities for tax efficient giving.
I’d love to hear your thoughts, successes and challenges and how we can incorporate strategic philanthropy into your daily routine.
Asking for a cash donation may seem easier than a Major Gift, but is it the right thing to do for your organization?
When you ask for cash donations you really don’t need to put the time into helping your donors while they are trying to help you and your organization.
When you ask for cash you don’t need to put the time into becoming a competent advisor or one who is willing to spend time with donors and provide direction or connections to those who can assist the donors in making a wise donation decision.
When you ask for a cash donation you don’t really need to learn new things like asset based giving or options for giving.
When you ask for cash you’re not building the sustainability of your organization but meeting your current needs.
But asking for assets makes sense for your donor and for your organization.
When you ask for a cash donation you are asking your donor to give out of the smallest bucket that they have in the overall assets. Cash is an asset but so are stocks, mutual funds, real estate, art, tangible personal property and registered investments and even private business shares.
I am willing to bet that the cash holding for most of your donors is truly the smallest bucket of assets of all of their holdings.
Then why do you keep on taking the easy way out?
If you invested in the stock market over the past year, the gain represents an opportunity to discuss the advantages of donating shares to your charity rather than donating cash. The share donation is pre-tax thus eliminating the tax owed on the donated shares. Rather than donating cash where you’ve already paid the tax, your donation actually cost you more than if you donated the equivalent amount in shares.
In the Giftabulator scenario above, the donor lives in Ontario and has a household income of $91,101 which determines their tax bracket. Their shares are worth $25,000 and they paid $10,000 for them. Not a bad return on investment. The tax on the asset is $2,605. A Major Gift of $5,000 provides a tax credit of $1,968 and reducing the tax to $637. The actual cost of their donation when transferred from their investment account to the charity is $3,032.
Invest in yourself, invest in your organization, embrace new approaches to donor engagement, donor education and organizational sustainability.
For more information, please feel free to contact me.
A Real Estate, Estate Plan
In our last blog, Gary expressed that the amount of real estate in existence was finite, and he didn’t want his donation to fall into the black hole. He was satisfied with the establishment of the organization’s foundation which would be a golden goose for the charity. So, he decided that part of his estate would include two significant real estate holdings to the organization.
He had discussions with his accountants who took great lengths to ensure that these assets could be received and realized by the organizations. Ultimately, this took months of ongoing discussions for Gary’s wishes to be fulfilled. Although he passed away, Gary was at peace knowing that his land was being used by a good cause.
Yet, while Gary went this route, it wasn’t the only direction available to him. You see, not all giving is straightforward, and there are many strategies that we explored with Gary as he was evaluating his options. Gary could have created a Donor Advised Fund (DAF) had he not chosen to donate to a charity directly. Let’s explore what this option would have looked like.
What is a Donor-Advised Fund?
A DAF is a giving account established at a public charity. It allows a donor to…
- Make a charitable contribution
- Receive an immediate tax deduction
- Recommend grants from the fund over time
One of the best parts is that donors can contribute to the fund as frequently as they’d like, and they can also recommend grants to their favorite charitable organization whenever it makes sense for them.
DAFs are surging in popularity for philanthropic Canadians because of increased awareness. More than ever, advisors are discussing giving options with their clients. One 2018 survey of financial advisors showed that 91 percent believed that discussing philanthropy with clients was “important,” while 53 percent of those individuals saw it as “very important.”
When you use DAFs, donors receive an immediate tax deduction for their contribution, and they have similar tax benefits as a private foundation. Bonus? You don’t have to deal with administrative responsibilities.
How Can I Get Started with a Donor-Advised Fund?
- Contribute assets
Establish your DAF by making an irrevocable contribution of your personal assets. This could be in the form of stock, real estate, cash, etc.
- Receive your tax deduction
Once you’ve established the DAF, you’ll be eligible to claim an itemized tax deduction for charitable contributions. The amount of the deduction will ultimately depend on several factors, but this is one of the primary benefits of giving through this means.
- Personalize your account
DAFs can be structured in a way that helps you meet your goals. You’ll be able to name your fund whatever you like, appoint individuals to help you manage the responsibilities, design a legacy plan, etc.
- Invest your assets for growth
The assets in your DAF are recommended based on your recommended strategy. Plus, any investment growth is tax-free!
- Support your favorite charitable organizations
Once you’ve established your donor-advised fund, you can start recommending grants to the charitable organizations that mean the most to you.
Ultimately, Gary decided that he wanted to make a difference for others but not get too complicated with other strategies. If you’re in his position be sure to explore all the planned giving strategies available to you. Visit FUNDING matters for more information.
Raise more money for your organization!
Join us on Thursday May 13th to hear from an expert panel discussing
the opportunities and challenges raising funds today, and moving forward.
Based on the popularity of this week’s Session, we have opened up with additional virtual seats – reserve your spot today!
I am pleased to be part of the organizing committee Session 4 presenter and sponsor for Knowledge Hub.
Every not-for-profit organization needs to hear stories and insights about how organizational leaders have navigated their organizations through this period and how they are planning in moving forward.
I hope you can attend or share with your network.
Gary and the Black Hole in Charity Land
For the past few weeks, we’ve been reviewing the nine potential ways that you can give to charitable organizations. So far, we’ve reviewed stocks, registered retirement investments, and small business shares. This week, we’re diving into real estate with a unique donor named Gary.
Gary’s Story: Donating Real Estate to Charity
Gary wasn’t your average donor. He said two things that reveal who he is and how he thinks. “Land — they’re not making more of it!” and “I don’t want to pay taxes when I die.”
These two sentiments aren’t often heard together in a donor discussion, but as a retired contractor who had invested in land development over the years, Gary focused on people, places and things. He was a widower with one adult child, and he was a hard-working individual who could always be counted on to financially support his favourite organizations.
For instance, one of Gary’s charities once received a $1 million challenge grant. Without hesitation, he pledged $100,000. His philanthropic giving was always done quietly and without recognition. When he saw the community’s donations were at $850,000, Gary called to kick in that last $150,000. Of course, everyone wanted to know, “Who was the final donor?” The response was “Anonymous.”
But Gary wasn’t done with his giving. As he described, he had large tax obligations due to his large amount of taxable capital gains. His accountant alerted him to update his will and told him to plan to allocate his assets and look at which organizations might help him reduce his taxes.
At FUNDING matters, we’re familiar with how this can be done thanks to the Power Donor Experience and the GIFTABULATOR. If you’re in a similar situation to Gary, make sure you check out our resources to minimize your taxes.
The Black Hole of Charitable Giving
Gary would often say that he felt that he was putting his money into a “black hole” when donating to charities. He never knew where the money went or how it was spent. No one in his family shared his spirit of community support or charitable giving either.
However, thanks to his accountant’s advice, Gary knew that charitable giving could help him out of his dilemma of paying taxes when he died. To get this process started, Gary approached a charitable organization about establishing a foundation. When Gary passed, the organization would receive a donation from Gary.
The process ended up working out well for him. The foundation was established, the board was nominated and elected, the Investment Policy Statement (IPS) was created, and information about the new foundation was slowly shared. The IPS was based primarily on stocks, mutual funds, and cash donations from estates.
While Gary was alive, he had a $3 million property that he acquired many years ago. With real estate values at an all-time high, this would have been an ideal time to sell; however, it also would have meant immense capital gains tax. Fortunately, he also had the option to donate the property.
The property was donated, and the charity’s foundation received the largest donation in its history. Gary requested that the organization retained the property until he passed since it could be used as a wonderful retreat for community members. It could even generate new revenue for the charity!
Gary has since passed, but he gave direction in his estate for another major asset to be given to the foundation he created. In the next blog, we’ll cover Gary’s estate bequest.
Main Street: The Backbone of the Economy and
In the last blog, Sophie’s Legacy, we discussed how Registered Retirement Investments can transform estate planning. As soon as potential donors have access to the FUNDING matters Power Donor Experience (PDX) and the GIFTABUALTOR, their calculus can change.
Simply put, most people don’t know how to make tax-efficient donations. When they have the proper tools to understand how to do this, they’re much more willing to donate to the charitable organizations that need their help. Today, we’ll talk about small business shares, and how a man named Joe made a $1million donation to his favourite charity and still found a way to benefit his family.
How Donating Capital Assets Can Benefit Everyone
As of December 2017, the Canadian economy totaled 1.2 million employer businesses. Of these, 97.9 percent were small businesses, 1.9 percent were medium-sized businesses, and 0.2 percent were large businesses. More than half of Canada’s small businesses are concentrated in Ontario and Quebec (440,306 and 249,685 respectively).
According to Trevor R. Parry M.A. LL. B LL.M (Tax) CLU TEP, an Ontario lawyer focusing on tax, most of the taxes are paid by small business owners, and they should be able to direct their taxable capital gains to benefit their communities — not only in taxes but also in charitable giving. Trevor suggests, the gift of shares could be both a living tax plan and a testamentary one. In the first case, the business owner would gift shares of the company to a charity.
As the entrepreneur owns those shares personally, the gift will result in creating a Charitable Donation Tax Credit which is particularly useful as they are likely exposed to some top-rate taxation (53.53% in Ontario).
In Joe’s case, he and his advisor decided that it was the right time to make a significant donation to his favourite university. How much was that donation? $1,000,000.
Here’s a screenshot of the GIFTABULATOR with the information about his $1,000,000 donation plugged in.
As you can see, his asset is not only worth 4 times as much today, but he also generated a significant tax credit and reduced his tax to only $137,719. In the end, he made a $1,000,000 donation while only paying $558,448.
Overall, the success of the economy and charitable organizations is based on the backbone of small businesses. With the guidance of financial advisors, prospective donors can wisely create tax-efficient lasting legacies for the communities that they serve.
Transformative Estate Planning
In last week’s blog, From Spare Change to Real Change, we talked about major and planned giving through stocks. At FUNDING matters, our goal is to help your organization allow donors to visualize the various types of assets that can be used to make a donation. In this week’s blog, we’ll be discussing charitable giving through Registered Retirement Investments. To start, let me take you back to a conversation I once had with a woman named Sophie.
Back in 2008, I was advising for a non-profit home for the aged on their capital campaign. The project was an expansion and modernization of a long-term care home, and we hosted a series of donor discussions and presentations (PDX Step 4: Communication) on the topic. I specifically enjoyed teaming up with advisors that had an association with the organization (PDX Step 5: Leverage and Alliances). The presentations were initially titled “Leaving Your Legacy.” The early presentations drew a small number of attendees. It was only after following up with those who made time to attend and seeking their feedback that they greatly appreciated the tax, legal, and estate planning information acquired from the session. They knew they were getting valuable information.
As a group, we thought that the insight was helpful and wanted to continue to offer this type of advice, but instead of focusing on legacy, we pivoted and renamed the sessions “Estate Planning for You and Your Family.” Immediately, we noticed a significant increase in the turnout. By altering the focus, the session now allowed us to address the options for giving as part of both financial and estate planning. Tax-efficient major gifts and planned gifts were both woven seamlessly into the presentations.
Sophie, an elderly lady diagnosed with terminal cancer, attended all of the estate planning sessions. She would bring piles of estate planning literature from various financial institutions that she collected. She was on a mission to get educated and have meaningful discussions with her advisors.
When I ran through different scenarios using the GIFTABULATOR in the presentations, she was able to visualize various potential scenarios. Did she want to make a donation, a bequest, or both? Sophie pulled me aside, and I met with both her and her advisors over the next few months. We walked through different scenarios that may make sense for her. Sophie wanted to know how much she might pay in tax on Registered Retirement Investments.
So, I plugged in some examples both in the GIFTABULATOR Give Now (Major Gift) and Give Later (Bequest), and I showed her the outcome from the hypothetical numbers.
Then she asked, “How much tax will I owe on a $12 million Registered Retirement Investment?”
I was initially taken aback. Was she serious? She said, “Put in the numbers. I don’t want to pay taxes. I would rather see my money put to use for those organizations that are doing important work. I want to make a difference. I am a widow, and my children and grandchildren are taken care of. There will be enough for them if I donate.”
Today, Sophie’s legacy lives on at universities, libraries, and homes for the aged. All of these spaces were important throughout different stages of her life, and she had the opportunity to demonstrate her commitment to them even after she passed.
How Visualization Made the Difference for Sophie
Before our presentations, Sophie hadn’t considered a Registered Retirement Investment. She couldn’t conceive of what it would be or visualize herself doing it. She didn’t know the various types of assets that could be used to make a donation. Once she did, she was ready to do it.
Having the ability to plug in the numbers and see what it looked like helped make it real for her. The GIFTABULATOR is the tool that every organization needs for major and planned gifts. Easy to understand, use, and explain, it’s a tool that forecasts the potential for giving (and for a zero-tax bill!)
See the below screenshots and how Sophie’s estate and legacy were structured.